As the D.C. real estate market continues to thrive, more and more residents seek to create value in the rapidly developing DMV area. Perceived barriers to entry deter many prospective investors from participating in this fast growing — and lucrative — market. However, flexible retirement accounts can eliminate these barriers by giving individuals greater control of their portfolios and opening new investment classes.

Self directed IRAs provide the same deferred taxation benefits as traditional IRAs or 401ks, while offering individual choice in the investment process. The flexibility to create portfolios that extend past more conventional approaches open real estate investment to untapped and diverse prospective clients.

Another valuable tool is the 1031 exchange or Starker exchange. It lets you sell an investment property from your portfolio and replace it with a “like-kind” property. The 1031 exchange is best suited to when the property is already held outside of a retirement account and when debt is used to purchase the replacement property. You can defer any capital gains, and improve the value of your retirement fund.

When creating a self-directed IRA you’ll give it a name to ensure that it’s a separate legal entity. You may also bring in a custodian or administrator to make sure you stay in compliance with IRS and state regulations.

These types of IRA’s offer a unique benefit. While profits from selling a primary residence are largely sheltered from capital gains tax by law, it’s a different story with investment properties where your profit may be subject to a high rate of taxation. When used properly, the self directed IRA allows you to buy and sell investment properties, creating individual wealth long before reaching the threshold of retirement.

Because this a retirement account it’s important to avoid any perception of self-dealing, like living in that property or collecting rent from it, which could draw unwanted scrutiny and possibly a tax bill. Moving real properties in and out of your IRA is more complicated than the equivalent stock transaction. Many resources are available to help maximize value while minimizing risk.

Properties exchanged through a 1031 exchange can be treated like traditional businesses — you can rent, manage, or work on the property without incurring tax penalties. Simply choose an exchange agent in the months before selling your property and you’ll be ready to transfer your equity to a wide variety of real estate opportunities.

Regardless of the investment strategy, owners can capitalize on this specialized knowledge of the local market while engaging with players in the local real estate community. You’ll be empowered by taking control of your investment strategy while participating in one of the most dynamic marketplaces in America today.